Social Security & Reform: Can we tax our way to a solution?

In this very comprehensive analysis, Dan Caplinger of The Motley Fool takes a hard look at how Social Security is currently funded and what it would take to address the solvency issue solely by adjusting its taxes.  Caplinger notes the tax structure is slightly regressive, as taxes are applied only on the first $128,400 of income.  However, benefits replace a higher share of lower income earnings, which is generally considered fair by experts.  Citing the Social Security Trustees Report, an immediate Social Security tax increase of 2.78 percentage points would be needed to keep Social Security solvent through the 75-year projection period that the trustees examine each year.  That would take the payroll tax for Social Security from the current 12.4% to 15.18%, split equally between employee and employer at 7.59% rather than the current 6.2%.  As costly as that is, consider what delay means.  Waiting until the Social Security Trust Funds run out of money, which is 2034 under this year’s projections, before taking action to restore revenue by raising payroll taxes requires a massive 3.87 percentage point increase overall to fix the problem.  Read more here.

The Association of Mature American Citizens (AMAC) has developed a bipartisan compromise bill, titled “The Social Security Guarantee Act,” which addresses the solvency issue without raising taxes.  With modest changes in the benefit formula and a gradual adjustment in the full (but not early) retirement age, AMAC is resolute in its mission to get the attention of lawmakers in DC, meeting with a great many congressional offices and their legislative staffs over the past several years. Read AMAC’s Social Security Guarantee here…

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